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1. Assume that Cold Rock sells ice cream for $3.85 per gallon. The cost of each gallon follows: $.90 80 Materials Labor Variable overhead Fixed
1. Assume that Cold Rock sells ice cream for $3.85 per gallon. The cost of each gallon follows: $.90 80 Materials Labor Variable overhead Fixed overhead ($23,430 per month, 21,300 gallons per month) 1.10 Total cost per gallon $320 One of Cold Rock's regular customers asked the company to fill a special order of 500 gallons at a selling price of $2.75 per gallon for a fundraising picnic for a local charity. Cold Rock has capacity to fill it without affecting total fixed costs for the month. Cold Rock's general manager was concerned about Selling the ice cream below the cost of $3.20 per gallon and has asked for your advice Required: a. Prepare a schedule to show the impact on Cold Rock's profits of providing 500 gallons of ice cream in addition to the regular production and sales of 21,300 gallons per month. Should Cold Rock accept this special order? Difference Status Quo 21,300 pallons Alternative 21,800 gallons Sales Less: Materials Labor Variable Overhead Total Variable Cost Contribution Margin Less: Fixed costs Operating profit b. Based solely on the data given, what is the lowest price per gallon at which the ice cream in the special order could be sold without reducing Cold Rock's profits? C. Cold Rock was operating at capacity, what would happen to operating profit if the special order was accepted
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